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Indiana Department of Financial Institutions


                   Take Home Guide

                   Building: Knowledge,
                   Security, and Confidence

                            TABLE OF CONTENTS
Money Smart .............................................................................................................. 2
Loan To Own .............................................................................................................. 3
  Lending Terms ......................................................................................................... 4
  Consumer Loan Versus Rent-to-Own ...................................................................... 5
  Differences Between a Car Loan and a Lease ......................................................... 6
  Auto Financing Tips ................................................................................................. 7
  Home Equity Loan Tips ............................................................................................ 8
  For Further Information ............................................................................................ 9
  Course Evaluation – Loan To Own......................................................................... 11
  What Do You Know – Loan To Own....................................................................... 12
  Brochures .............................................................................................................. 15

Money Smart – Financial Education Curriculum Loan To Own Take-Home Guide                                                  1
Money Smart
The Money Smart curriculum is brought to you by the Indiana Department of Financial
Institutions/Federal Deposit Insurance Corporation (FDIC). The Money Smart program includes the
following courses:

 Your Rights
  your rights as a consumer

 Bank On It
  an introduction to bank services

 Check It Out
  how to choose and keep a checking account

 Loan To Own
  how to keep track of your money

 Pay Yourself First
  why you should save, save, save

 Borrowing Basics
  an introduction to credit

 To Your Credit
  how your credit history will affect your credit future

 Charge It Right
  how to make a credit card work for you

 Your Own Home
  what homeownership is all about

 Loan to Own
  know what you‟re borrowing before you buy

Money Smart – Financial Education Curriculum Loan To Own Take-Home Guide                     2
Loan To Own

Welcome to Loan To Own! Understanding installment loans is important when
considering taking out a loan to make purchases. This course will provide you with
general information on installment loans, including car loans.

 When you have completed this course, you will be able to describe the
characteristics of consumer installment loans.

See the Indiana Department of Financial Institutions‟ Web Sites on Credit Information
at http://www.in.gov/dfi/education/end.htm.

Money Smart – Financial Education Curriculum Loan To Own Take-Home Guide             3
Lending Terms

Installment loans are loans that are repaid in equal monthly payments (installments)
for a specific period (usually several years). The following terms are basic lending

Fixed rate loan – A loan that has an interest rate that stays the same throughout the
term of the loan.

Variable rate loan – A loan that has an interest rate that might change during any
period of the loan, as written in the loan agreement or contract.

Annual Percentage Rate – The APR is the cost of your loan expressed as a yearly
percentage rate. When shopping for the best loan rates, compare the APRs rather
than the interest rates since APRs reflect the cost of interest and other finance
The chart below shows how the APR can make a difference for a 5-year $5,000 loan.

                    APR                Monthly Payments                    Total Cost
                      10%                      $106.24                     $6,374.40
                      11%                      $108.71                     $6,522.60
                      12%                      $111.22                     $6,673.20
                      13%                      $113.77                     $6,826.20
                      14%                      $116.37                     $6,980.40
                      15%                      $118.95                     $7,137.00
                      16%                      $121.59                     $7,295.40
                      21%                      $135.27                     $8,116.20

Finance Charge – The dollar amount the loan will cost you. It includes items such
as interest, services charges, and loan fees.

Collateral - The asset you promise to give to the lender if you do not pay back the

Secured loan – A loan where the borrower offers collateral for the loan. The borrower
gives up his or her right to the collateral if the loan is not paid back as agreed

Unsecured loan – A loan where the lender does not require collateral.

Money Smart – Financial Education Curriculum Loan To Own Take-Home Guide                4
Consumer Loan Versus Rent-to-Own

Example: A local electronics store was selling the television Chris wanted for $500.
A nearby rent-to-own store advertised the same model for $15. a week. The
manager told Chris he would own the television in 72 weeks.

Chris decided to purchase the television at the electronics store for $500. He was
able to obtain a 1-year installment loan with a 21% APR.

As shown in the table below, using a rent-to-own store would have cost Chris $1,080.
By obtaining a short-term installment loan, Chris saved $521.20 ($1,080 - $558.72 =

Although $15 a week sounds affordable, it can actually cost you more in the end.

   Consumer Installment Loan                                               Rent-to-Own

  Advertised price = $500                                 Advertised price = $15 per week

  21% APR for 1 year

  $46.56 x 12 months = $558.72                            $15 x 72 weeks = $1,080

  Chris saved $521.20

Money Smart – Financial Education Curriculum Loan To Own Take-Home Guide                    5
Differences Between a Car Loan and a Lease

Before you get your next car, it is important to evaluate the costs and benefits of
leasing versus buying a car.

     Ownership  With a lease you do not own the car. Leases are basically long-
      term rental agreements. You make monthly payments to the dealership or
      financial Institution. These agreements might last 2-5 years. If you obtained a
      car purchase loan, you would own the car at the end of the loan.

       Wear and Tear  Most leases charge for exceeding „normal‟ wear and tear. If
        you buy, you would not have any additional costs for wear and tear in your
        purchase agreement.

     Monthly Payments  You will have lower monthly payments if you lease a
      car rather than if you finance a car. The reason monthly lease payments would
      be lower than monthly loan payments is because you are not purchasing the
      car. The dealership owns the car. Once the lease agreement is over, you turn
      in the car. Although you have the option of purchasing the car at the end of the
      lease, the total cost would be more than if you had initially bought the car. With
      a car loan, you actually pay for the purchase of the vehicle. Once you finish
      making the payments, you own the car.

     Mileage Limitations  Leases usually restrict the number of miles you drive
      each year. You must pay the dealer for each additional mile driven as stated in
      your lease contract. For example, a two-year lease might have a 24,000-mile
      restriction. Each mile driven over 24,000 will cost you $.l5. This can add up if
      you drive a lot. Driving 2,000 miles over the limit would cost you $300 (2000 x
      $.15 = $300). However, if you buy a car, there are no mileage restrictions.

     Auto Insurance  Auto insurance usually costs more if you lease than if you
      purchase a car. Most car leases require you to purchase higher levels of
      insurance coverage. Make sure you find out what the requirements are and get
      an estimate from your insurance company before you decide on leasing.

Money Smart – Financial Education Curriculum Loan To Own Take-Home Guide              6
Auto Financing Tips

     Shop around for auto financing before going to the dealer. Get pre-approved
        for the loan.

     Compare APRs from local banks, thrifts, and credit unions, websites, and

     Order a copy of your credit report and correct any error a few months before
        shopping for a car.

     Make the largest downpayment you can. Beware of a low downpayment or
        long repayment plan. The more you borrow and the longer you take to pay the
        loan, the more interest you pay and the more your car will cost you in the end.
        Additionally, if you have to sell your car in the first few years, you could owe the
        lender more than the car is worth.

     Consider paying for the tags, title search, and taxes separately rather than
        financing them. This can reduce the amount of interest you will pay.

     If you are going to apply for a loan at the dealership, make sure you first
        negotiate the best price on the car. Beware of dealers who insist on asking you
        how much you can afford every month. These dealers might be interested in
        making you stretch out the term of the loan to make the loan sound more
        affordable. However, by extending the length of the loan, your total cost will

     If you need to give the dealer a deposit, make sure you know whether you will
        get the money back if you change your mind. It is best to get this in writing.

     Service contracts, credit insurance, extended warranties, and other options are
        not required and can be costly over the term of the loan.

     Be wary of ads that promise loans for people with bad credit. These deals often
        require a higher downpayment or have a very high APR.

Money Smart – Financial Education Curriculum Loan To Own Take-Home Guide                  7
Home Equity Loan Tips

 Don‟t agree to a home equity loan if you don‟t have enough income to make the
    monthly payments.

 Do not let anyone pressure you into signing any documents; read and understand
    the closing papers carefully. Do not be afraid to ask questions.

 Remember to shop around for the best rates. The Federal Trade Commission
    (FTC) has a home equity shopping list. This can be found on the following
    website: www.ftc.gov/bcp/conline/pubs/alerts/shopeqtyalrt.htm.

 Be aware of penalties. Some lenders might charge you for paying off your home
    equity loan early.

 Remember, all home equity loans secured by your primary home have a three-
    day cancellation period. This means you have three days to change your mind.

See Indiana Department of Financial Institutions Web Sites on Home Equity
Mortgages at: http://www.in.gov/dfi/education/CIhome_equity.htm.

Money Smart – Financial Education Curriculum Loan To Own Take-Home Guide           8
For Further Information
Indiana Department of Financial Institutions
30 South Meridian Street, Suite 300
Indianapolis, Indiana 46204-2759
(317) 232-3955

These Web Sites provide access to all online U. S. Federal Government resources.

The Federal Consumer Information Center (FCIC) provides free online consumer information.
The FCIC produces the Consumer Action Handbook, which is designed to help citizens find the
best source for assistance with their consumer problems and questions.

The Federal Trade Commission (FTC) publishes a variety of consumer education brochures.

Consumer World is a public service, which catalogs over 2000 consumer resources.

Consumers Union is a nonprofit organization that provides information on a variety of consumer

National Association of Mortgage Brokers‟ educational information on home ownership.

Money Smart – Financial Education Curriculum Loan To Own Take-Home Guide                         9
Buying a Car

The Indiana Department of Financial Institutions has Web Sites on Auto Credit and Leasing at:

The Federal Trade Commission (FTC) has information that can help you buy a car and help you get
the best price. The Web Site, www.ftc.gov/bcp/menu-auto.htm, has brochures such as:

         Buying a New Car  includes tips on how to choose a car, information on negotiating the
          prince, and considerations when financing a car.
         Buying a Used Car  includes information explaining different payment options, dealer
          sales, private sales, and warranties.

   Home Improvement
   Home Improvement
To get more information on home improvement, including how to hire contractors, how to
understand your payment options, and how to protect yourself from home improvement scams,
read the FTC brochure, Home Sweet Home..Improvement at:

   Legal Services

If you think you are a victim of a scam, contact an attorney. Most communities have programs that
provide free legal services to individuals with little or no income. Look in the community services
pages of your phone book or look in the white pages under “Legal Services..” for the phone number
of the local program.

The American Bar Association has a directory of pro bono programs (volunteer lawyer programs).
The programs use local lawyers who have agreed to provide free legal services. To find a program
in your are, you can go to the following Web Site:

Money Smart – Financial Education Curriculum Loan To Own Take-Home Guide                            10
Course Evaluation – Loan To Own


Thank you for your participation in this course. Your responses will help us improve
the training for future participants. Please circle the number that shows how much
you agree with each statement. Then answer the questions at the bottom of this
form. If you have any questions, please feel free to ask your instructor.

                                                                           Strongly Disagree

                                                                                                                  Strongly Agree

1. The course was interesting and kept my attention.                           1                   2       3      4
2. The examples in the course were clear and helpful.                          1                   2       3      4
3. The activities in the course helped me understand the information.          1                   2       3      4
4. The slides were clear and easy to follow.                                   1                   2       3      4
5. The take-home materials were easy to read and useful to me.                 1                   2       3      4
6. The instructor presented the information clearly and understandably.        1                   2       3      4
7. The information / skill taught in the course is useful to me.               1                   2       3      4
8. I am confident that I can use the information / skill on my own.            1                   2       3      4
9. I am satisfied with what I learned from this course.                        1                   2       3      4

What was the most helpful part of this course?

What was the least helpful part of this course?

Would you recommend this course to others?

Any comments or suggestions?

Money Smart – Financial Education Curriculum Loan To Own Take-Home Guide                                             11
What Do You Know – Loan To Own


This form will allow you and the instructor to see what you know about budgeting both
before and after the class. Read each statement below. Please circle the number
that shows how much you agree with each statement.

                                                                           Before-the-Course                                       After-the-Course

                                                                           Strongly Disagree

                                                                                                                                   Strongly Disagree
                                                                                                                  Strongly Agree

                                                                                                                                                                          Strongly Agree


I know:
1. How to describe different types of consumer                                 1                   2       3      4                    1                   2       3      4
   installment loans.
2. How to determine the right consumer installment loan                        1                   2       3      4                    1                   2       3      4
   for my needs.

Money Smart – Financial Education Curriculum Loan To Own Take-Home Guide                                                                                                     12

Money Smart – Financial Education Curriculum Loan To Own Take-Home Guide   13

Money Smart – Financial Education Curriculum Loan To Own Take-Home Guide   14
The following are Brochures created by the Indiana Department of Financial Intuitions on subjects
covered in this course.

Money Smart – Financial Education Curriculum Loan To Own Take-Home Guide                            15
Fast Facts                                                                                                              You can consult consumer or automotive publications
                                                            Does the financing require a larger-than-usual              for information about what the dealer pays.
                                                            downpayment? Perhaps 25 or 30 percent?
 Read the ad carefully when considering an                                                                             Does the "dealer’s invoice" include the cost of options,
advertised special.                                         Are there limits on the length of the loan? Will I be       such as rustproofing or waterproofing, that already
                                                            required to repay the loan in a condensed period of         have been added to the car? Is one dealer charging
Call or visit the dealer to find out about all the          time, say 24 or 36 months?                                  more for these options than others?
terms and conditions of the offer.                          Is there a significant balloon payment —possibly
                                                            several thousand dollars — due at the end of the loan?      Does the dealer have cars in stock that have no
 Ask if the financing requires a larger-than-                                                                          expensive options? If not, will the dealer order one for
usual down payment.                                         Do I have to buy special or extra merchandise or            you?
                                                            services such as rust-proofing, an extended warranty,
Find out if there are limits on the length of the loan.     or a service contract to qualify for a low-interest loan?   Are the special offers available if you order a car
                                                                                                                        instead of buying one off the lot?
 Ask if a low rate applies to all cars. Ask if             Is the financing available for a limited time only? Some
                                                            merchants limit special deals to a few days or require      Can you take advantage of all special offers
the offer applies only to certain models.                                                                               simultaneously?
                                                            that you take delivery by a certain date.
 Read your invoice and the installment contract
carefully.                                                  Does the low rate apply to all cars in stock or only to     REMEMBER. . . .
                                                            certain models?
                                                                                                                        You’re not limited to the financing options offered by a
READING BETWEEN THE LINES                                   Will I be required to give the dealer the manufacturer’s    particular dealer. Before you commit to a deal, check to
                                                            rebate to qualify for financing?                            see what type of loan you can arrange with your bank
Many new car dealers advertise unusually low interest                                                                   or credit union.
rates and other special promotions. Ads promising high      QUESTIONS ABOUT OTHER
trade-in allowances and free or low-cost options may        PROMOTIONS                                                  Once you decide which dealer offers the car and
help you shop, but finding the best deal requires careful                                                               financing you want, read the invoice and the
comparisons.                                                Other special promotions include high trade-in              installment contract carefully. Check to see that all the
                                                            allowances and free or low-cost options. Some dealers       terms of the contract reflect the agreement you made
Many factors determine whether a special offer                                                                          with the dealer. If they don’t, get a written explanation
                                                            promise to sell the car for a stated amount over the
provides genuine savings. The interest rate, for                                                                        before you sign. Careful shopping will help you decide
                                                            dealer’s invoice. Questions like these can help you
example, is only part of the car dealer’s financing                                                                     what car, options, and financing are best for you.
                                                            determine whether special promotions offer genuine
package. Terms like the size of the downpayment also
affect the total financing cost.
                                                                                                                        FOR MORE INFORMATION
                                                            Does the advertised trade-in allowance apply to all
QUESTIONS ABOUT LOW                                         cars, regardless of their condition? Are there any          If you have questions or complaints about car ad offers,
                                                            deductions for high mileage, dents, or rust?
INTEREST LOANS                                                                                                          contact: Consumer Response Center, Federal Trade
                                                            Does the larger trade-in allowance make the cost of the     Commission, Washington, D.C. 20580, 202-326-2222;
A call or visit to a dealer should help clarify details     new car higher than it would be without the trade-in?       TDD: 202-326-2502.
about low interest loans. Consider asking these             You might be giving back the big trade-in allowance
questions:                                                  by paying more for the new car.                             While the FTC doesn’t resolve individual disputes,
                                                                                                                        complaints about car ads help the FTC in its law
Will I be charged a higher price for the car to qualify     Is the dealer who offers a high trade-in allowance and      enforcement efforts.
for the low-rate financing?                                 free or low-cost options giving you a better price on the
                                                            car than another dealer who doesn’t offer promotions?                              
Would the price be lower if I paid cash or supplied my
own financing from my bank or credit union?                 Does the "dealer’s invoice" reflect the actual
                                                            amount that the dealer pays the manufacturer?
                                                           AUTO ADS
The Indiana Department of Financial Institutions,
Division of Consumer Credit has many other credit
related brochures available, such as :

         Answers to Credit Problems
         Applying for Credit
         At Home Shopping Rights
         Bankruptcy Facts
                                                             Low Interest Loans
         Buried in Debt
         Car Financing Scams
                                                              and Other Offers
         Charge Card Fraud
         Choosing A Credit Card
         Credit and Divorce
         Credit and Older Consumers
         Deep in Debt?                                             AUTO ADDS
         Equal Credit Opportunity
         Fair Credit Reporting
         Fair Debt Collection
         Gold Cards
         Hang up on Fraud
         High Rate Mortgages
         Home Equity Credit Lines
         How to Avoid Bankruptcy
         Indiana Uniform Consumer Credit Code
         Look Before you Lease
         Mortgage Loans
         Reverse Mortgage Loans
         Rule of 78s – What is it?
         Scoring for Credit
         Shopping for Credit
         Using Credit Cards
         Variable Rate Credit                              DEPARTMENT OF FINANCIAL INSTITUTIONS
         What is a Budget?                                           Consumer Credit Division
         What is the DFI?                                       30 South Meridian Street, Suite 300
                                                                    Indianapolis, Indiana 46204
Call our toll-free number or write to the address on the                   317-232-3955
cover for a copy of any of the brochures listed or for                    1-800-382-4880
further consumer credit information.
THE LEASING QUESTION                                                       Leasing puts the driver in a new car every two or three years. For       as a worksheet. On the form, compare the agreed upon value of the
                                                                          some consumers, this is an important lifestyle consideration.             vehicle with the gross capitalized cost to see what charges have
Leasing became popular when businesses wanted to operate                  Leasing also allows consumers to drive a more expensive vehicle           been added.
automobile fleets while avoiding the high cost of ownership and           than they can afford to buy.
maintenance. When individual leasing developed, consumers were                                                                                      The law of supply and demand affects leasing as well as buying. If
faced with a new market question: to lease or not to lease.               Leasing is easier since negotiating over the price is downplayed.         car sales are breaking records and the model you want to lease is a
                                                                                                                                                    hot seller, expect to pay more. If the opposite is true and car sales
Automobile leasing is not a simple matter. Cars lose value or             Vehicles are subject to wear as they age. A lease allows consumers        are sluggish, bargain for a capitalized cost that represents a
depreciate over time. When you lease a car for two years, you are         to side-step the issue. By the time the car needs expensive repairs,      discount from the MSRP.
paying for two years of depreciation in monthly payments plus             the lease will have ended.
interest. At the end of the lease, the automobile can be either sold to                                                                             Filled in disclosure form. Ask the salesperson to fill in the
you or someone else for its value at that point. There is no              There is no hassle with a trade-in at the end of the lease.               disclosure form-front and back and give you the figures. Be sure
ownership, you simply pay for the use of the automobile. The                                                                                        that you check the box near the middle of the front page in order to
manufacturer's warranty covers most repairs but all maintenance           Current tax law considers many of the expenses of a lease car used        get a step-by-step calculation of the monthly payment. At this time,
costs and insurance are your responsibility.                              for business to be tax deductible.                                        lessors are not required to provide data on the money factor used to
                                                                                                                                                    calculate the equivalent of the annual percentage rate of interest
The new Regulation M from the Federal Reserve Board, effective            DISADVANTAGES OF LEASING                                                  (APR) charged on vehicle loans.
January 1, 1998, requires disclosure by leasing companies of
specific information and provides consumers with a description in         When the lease ends, you have built up no equity in a vehicle. You        Review the disclosure form. Ask for explanations of any items
writing of the lease's financial details. A model disclosure form is      have nothing to trade in on a new car, so you will probably lease         you do not understand. Make sure that the trade-in allowance
available. The stated purpose of the new Regulation M is to allow         again.                                                                    reduces the gross capitalized cost. In the past, a common leasing
consumers to compare one lease with another for the same vehicle                                                                                    complaint was that consumers were not given credit for the trade-in.
and to compare leasing a vehicle with buying it on credit. However,       If a lease runs longer than the vehicle's warranty, the lessee may        To prevent this, scrutinize the line on the disclosure form titled
the disclosure requirements do not apply to lease transactions over       have to pay for repairs that would have been covered.                     capitalized cost reduction. The total amount should include rebates,
$25,000.                                                                                                                                            cash down payment, and trade-in allowance. If you have paid a
                                                                          In most cases, leasing is more expensive than buying on credit.           deposit, make sure you get credit for it.
                                                                          Maintenance requirements for leased vehicles are strict if the lessee     Take the lease home and study it. Once the lease is written,
                                                                          hopes to avoid end-of-lease charges. A lessee should honor the            instead of signing on the spot, ask for an exact photocopy to take
Lessee. The consumer.
                                                                          manufacturer's recommended maintenance schedules and should               home and study. Given the importance of the document, the
Lessor. The company that owns the automobile.
Gross capitalized cost. The price of the car for leasing purposes.        have written receipts to prove that service was performed as              obscurity of its terms, and its legally binding status, a quick decision
                                                                          required.                                                                 is not smart. If possible, avoid giving a deposit at this stage since
Capitalized cost reduction. Amount of cash down payment, trade-
                                                                                                                                                    there is no deal until you sign the lease.
in or rebate.
Residual Value. The automobile's value at the end of the lease.           Early termination of a lease may result in substantial charges to the
                                                                          lessee.                                                                   Compare the figures. At home, compare the figures on the lease
Also known as guaranteed future value or lease-end value. It is
                                                                                                                                                    with those on your disclosure form. Look for unexplained changes.
often expressed as a percentage of the Manufacturers Suggested
Retail Price (MSRP). The higher the residual value, the less              STEPS IN AUTOMOBILE LEASING                                               Use your calculator to check the math. Verify the accuracy of the
                                                                                                                                                    most important figures: lease term, gross capitalized cost,
depreciation you pay. The residual value may be a negotiable
                                                                                                                                                    capitalized cost reduction, residual value. and rent charge.
figure. To determine it, many dealers consult a publication called        Know the important questions to ask before you lease a car. There
Automotive Leasing Guide, a useful tool for predicting future value.      are major differences between buying and leasing. However, the
                                                                                                                                                    A short-term lease, up to 24 months, means larger payments and
Payment Amount. An amount paid by the lessee that may include             first steps in leasing are the same as those in buying a car.
                                                                                                                                                    more money spent for depreciation. A longer lease, up to 48
interest, overhead and profit.
                                                                                                                                                    months, should have smaller payments, but may be less flexible.
Money Factor. This figure, also known as the lease rate or monthly        Collect information. Select the model you are interested in and
                                                                                                                                                    Experts recommend a lease length that coincides with the length of
lease fee, is the interest rate built into all leases. It is leasing's    record the identifying data at the dealership. Negotiate a fair price
                                                                                                                                                    the vehicle's warranty.
version of the annual percentage rate of interest (APR) that is           for the car and get a price commitment on your trade-in. Ask the
charged to people who buy on credit. Leasing companies do not             salesperson to have the agreement written up as a lease.
usually disclose the money factor except when competing with other        Negotiate the gross capitalized cost. Try to negotiate a gross            END-OF-LEASE COSTS AND OTHER
lessors.                                                                  capitalized cost somewhere between the MSRP and the dealer                CONSIDERATIONS
                                                                          invoice price. The lower the cap cost, the better deal for the
ADVANTAGES TO LEASING                                                     consumer. If the gross capitalized cost is too high, tell the             When you buy an automobile, the hard bargaining and stressful
                                                                          salesperson to cut items that increase the total cost. If the             confrontations often come at the beginning of the deal. In contrast,
The monthly payment is lower than when buying a car. In some              salesperson claims that capitalized cost is a fixed figure and can't be   leasing is quite simple at the onset but potentially complicated at the
cases there is no down payment at all.                                    lowered, find another salesperson. Use the required disclosure form       end. When you turn the car in, problems may develop. They can be
avoided by reading the fine print, sentence by sentence, before you        The Indiana Department of Financial Institutions, Division of
sign. Some of the important items to look for are:                         Consumer Credit has many other credit related brochures
                                                                           available, such as:
Gap Insurance. If the lease car is totaled or stolen, your auto

insurance may cover replacement but not the payments still
                                                                           Answers to Credit Problems
required. Gap insurance covers the difference between the
replacement value of the car and what is still owed on the lease. It is    Applying for Credit
expensive to purchase separately. Ask if it is included without            At Home Shopping Rights
charge to the lessee.                                                      Bankruptcy Facts
                                                                           Buried in Debt
Excess Wear and Tear. At the end of the lease, if the car has
visible damage, the consumer will probably be charged to repair it.
To protect yourself, get a copy of the written guidelines or checklist
issued by leasing companies. Of course, the longer the lease, the
more likelihood of an excess wear charge. Some leasing companies
                                                                           Car Financing Scams
                                                                           Charge Card Fraud
                                                                           Choosing A Credit Card
have made the marketing decision to downplay minor dings,
                                                                           Credit and Divorce
scratches, and upholstery stains. If no damages are assessed, the          Credit and Older Consumers
security deposit will be mailed to you shortly after the automobile is     Deep in Debt?
returned.                                                                  Equal Credit Opportunity
                                                                           Fair Credit Reporting
Excess Mileage. The yearly mileage limit should exceed your                Fair Debt Collection
normal driving needs. If it does not, find out the charge for additional   Gold Cards
miles. Try to negotiate a more favorable rate for added miles at the       Hang up on Fraud
outset.                                                                    High Rate Mortgages
                                                                           Home Equity Credit Lines
Disposition Fees. This end-of-lease charge covers costs for
picking up and processing the returned car for sale. Some leasing          How to Avoid Bankruptcy
companies do not charge a disposition fee or an acquisition fee, but       Indiana Uniform Consumer Credit Code
instead include the costs in the monthly payment. Also, some               Look Before you Lease
dealers will absorb the fee if the customer is planning to sign            Mortgage Loans
another lease.                                                             Repossession
                                                                           Reverse Mortgage Loans
Purchase Option. Many leases include the chance to buy the                 Rule of 78s – What is it?
automobile at the end of the lease. The disclosure sheet should tell       Scoring for Credit
you if the purchase price is pre-determined or negotiated at the end
of the contract. In cases where the residual value has been boosted
                                                                           Shopping for Credit
to a very high level, do not pay more than market price for a car.         Using Credit Cards
When examining the contract, see if there is a purchase option fee.        Variable Rate Credit
                                                                           What is a Budget?
Early Termination and Default. You may incur significant penalties         What is the DFI?                                                 DEPARTMENT OF FINANCIAL INSTITUTIONS
if you break the lease. For example, you may be required to pay                                                                                      Consumer Credit Division
100% of all the remaining payments. A detailed explanation of early        Call our toll-free number or write to the address on the cover       30 South Meridian Street, Suite 300
termination fees is required by the disclosure form. Although some         for a copy of any of the brochures listed or for further                 Indianapolis, Indiana 46204
leases can be broken with less penalty than others, early                  consumer credit information.
terminations are a big cause of disputes.                                                                                                                  317-232-3955
          
FAST FACTS                                       Be skeptical, then, if an auto dealer claims      WHY FINANCE YOUR CAR OR
                                                 that financing costs you less than paying cash.   OTHER PURCHASES?
                                                 Information telling the whole story may be
                                                 missing.                                          You may, however, find it advantageous to
Some auto dealers claim that you can save
money by financing a car rather than paying                                                        finance your car. Many car buyers prefer
                                                 HOW MUCH WILL IT COST?                            taking out loans to paying cash for any of the
                                                                                                   following reasons.
                                                 The Federal Trade Commission (FTC) has            You may need your cash for other purposes,
You may be shown a computer printout that        taken action against a company that
compares financing at one rate and investing                                                       such as paying for other products or services,
                                                 distributed computer software used to             maintaining a better cash flow, or building a
the cash not spent in a certificate of deposit   misrepresent the "savings" of financing versus
(CD) at a lower rate.                                                                              "cash cushion" for such things as emergencies
                                                 paying cash for a car. Many auto dealerships      or college tuition.
                                                 across the country may be using similar
The comparison leaves out a crucial point        software.
when you pay cash, you have no monthly                                                             You may be able to buy a more expensive car
payments.                                                                                          by using financing.
                                                 The computerized cost comparison seems to
                                                 "prove" you can save money by financing at        Under some circumstances, if you finance a
Paying interest on a loan always costs more      one rate and investing the cash not spent in a
unless you can invest your cash at an interest                                                     car that develops serious problems, you may
                                                 certificate of deposit (CD) at a lower rate.      not have to continue making payments.
rate higher than the loan rate.
                                                 But can you really come out ahead by              Some people would rather have to make
There may be good reasons to finance rather      borrowing at one rate and investing at a lower
than pay cash, saving money usually isn't one                                                      monthly payments than use their own money
                                                 rate? No! This comparison leaves out a            because they would be lax in paying
of them.                                         crucial point.                                    themselves back.
                                                 When you pay cash, you have no monthly            Be aware, however, that car salesmen may be
                                                 payments to make. If each month you invest        earning commissions when they convince you
When buying a car, don't be misled by cost       an amount equal to the car payment, the total
comparisons between financing and paying                                                           to finance a car through their dealership.
                                                 you accumulate will be more than the value of
cash. Many car dealers now use fancy             the CD described above.                           When a dealer assigns a contract to a bank or
computer printouts to show that financing a
                                                                                                   finance company, that creditor often gives the
car is a better deal than paying cash for it.    In the end, paying interest on a loan always      dealer a portion of the finance charge called a
                                                 costs you more unless you can invest your         “dealer reserve.” You may be able to get a
Beware…. The numbers may look good, but          cash at an interest rate higher than the loan     lower interest rate if you secure your own
the bottom line isn't. Although there may be     rate.                                             financing through your local bank or credit
good reasons to finance a car or other
expensive items, it's not usually because it
saves money.                                                                                       Think carefully about any claims that
                                                                                                   financing a car can save you money.
The Indiana Department of Financial Institutions,
Division of Consumer Credit has many other credit
related brochures available, such as:

Answers to Credit Problems
Applying for Credit
At Home Shopping Rights
Bankruptcy Facts
Buried in Debt
Car Financing Scams
Charge Card Fraud
Choosing A Credit Card
Credit and Divorce
Credit and Older Consumers
Deep in Debt?
Equal Credit Opportunity
Fair Credit Reporting
Fair Debt Collection
Gold Cards
Hang up on Fraud
High Rate Mortgages
Home Equity Credit Lines
How to Avoid Bankruptcy
Indiana Uniform Consumer Credit Code
Look Before you Lease
Mortgage Loans
Reverse Mortgage Loans
Rule of 78s – What is it?
Scoring for Credit
Shopping for Credit
Using Credit Cards
Variable Rate Credit
What is a Budget?                                           DEPARTMENT OF FINANCIAL
What is the DFI?                                                 INSTITUTIONS
                                                                  Consumer Credit Division
Call our toll-free number or write to the address on the       30 South Meridian Street, Suite 300
cover for a copy of any of the brochures listed or for           Indianapolis, Indiana 46204
further consumer credit information.                                    317-232-3955
The Indiana Uniform Consumer Credit Code, IC 24-4.5,               MAXIMUM CHARGES                                                   REBATE UPON PREPAYMENT
contains regulations concerning consumer credit sales and
leases such as:                                                    Closed-end credit sales maximum rate is a melded rate             Unearned finance charges based on the "Rule of 78s" rebate
                                                                   based on a step rate of 36% on the portion of the amount          are to be given upon prepayment in full of a precomputed
DEFINITIONS                                                        financed up to $930 (effective 7/1/98); 21% on the portion of     credit sale. Contracts over 61 months are to have finance
                                                                   the amount financed from $930.01 to $3,100; and 15% on the        charges rebated on an actuarial basis. The actuarial method
"Consumer Credit Sale" is a sale of goods, services, or an         portion of the amount financed over $3,100; or 21%,               is computed by applying the disclosed annual percentage
interest in land:                                                  whichever is greater.                                             rate to the unpaid balances of the amount financed for the full
                                                                                                                                     computational periods following the prepayment, as originally
         for a personal, family, or household purpose;            There is also a minimum finance charge allowed of $33.00          scheduled or as deferred.
         the credit is granted by a person who regularly          (effective 7/1/98).
          engages as a seller in credit transactions;                                                                                DEFERRAL CHARGES
         the buyer is a person other than an organization;        Open-end revolving charge sales maximum rate is 1 3/4%
         either the debt is payable in installments or a credit   per month (21% APR) with a minimum charge of 50 cents per         A creditor may contract for and receive a deferral charge on
          service charge (finance charge) is made; and             billing cycle.                                                    precomputed contracts at the disclosed APR. Unearned
         the amount financed does not exceed $50,000                                                                                deferral charges must be rebated upon prepayment in full.
          unless the debt is secured by personal property          ADDITIONAL CHARGES
          used or expected to be used as the principal                                                                               BALLOON PAYMENTS
          dwelling of the buyer.                                   Additional Charges may be imposed as follows:
                                                                                                                                     On a credit sale with a final payment twice as large as the
"Services" includes:                                                Official fees and taxes.                                        earlier scheduled payments, the creditor must refinance the
                                                                                                                                     final payment for no less favorable terms than the original
work, labor, and other personal services;                           Charge not to exceed $20 for each returned NSF check.           sale.

privileges with respect to transportation, hotel and restaurant     Property or liability insurance if the cost is disclosed and    REFERRAL SALES
accommodations, education, physical culture, hospital              the buyer may choose from whom the insurance is to be
accommodations, funerals, cemetery accommodations, etc.            obtained.                                                         A credit seller or lessor may not give or offer to give a rebate
                                                                                                                                     or discount or otherwise pay or offer to pay value to the buyer
insurance provided by a person other than the insurer.              Credit insurance if it is not a factor in the approval of the   or lessee as an inducement for a sale or lease in
                                                                   credit and the buyer gives affirmative, written indication of     consideration of his giving to the seller or lessor the names of
"Consumer lease" means a lease of goods:                           desire for the insurance. If a creditor requires credit           prospective purchasers or lessees, or otherwise aiding the
                                                                   insurance, it must be included in the finance charge and          seller if the earning of the rebate is contingent upon the
a lessor regularly engaged in the business of leasing makes        reflected in the APR.                                             occurrence of an event subsequent to the time the buyer
to a person, other than an organization, a lease primarily for                                                                       agrees to the purchase.
a personal, family, or household purpose;                          Closing costs on a debt secured by an interest in land.
                                                                                                                                     ATTORNEY'S FEES
the amount payable under the lease does not exceed                 Other charges approved by the Department.
$50,000; and                                                                                                                         A creditor may contract for and receive reasonable attorney's
                                                                   DELINQUENCY CHARGES                                               fees.
is for a term exceeding four (4) months.
                                                                   A creditor may contract for and receive a delinquency charge      LIMITATIONS ON DEFAULT CHARGES
"Regularly engaged" means a person who extends                     of not more than $15.50 {effective 7/1/98) when a payment is
consumer credit in the preceding calendar year or in the           made more than 10 days past the due date. Payments are            Except for reasonable expenses incurred in realizing on a
current calendar year more than 25 times or 5 times for            applied to current installments then to delinquent                security interest, the agreement with respect to a consumer
transactions secured by a dwelling.                                installments.                                                     credit sale may not provide for any charges as a result of
                                                                                                                                     default by the debtor other than those authorized by the
                                                                                                                                     Indiana Uniform Consumer Credit Code.
RESTRICTION ON LIABILITY ON CONSUMER LEASE                             Records of the volume of consumer credit transactions must
                                                                       be maintained when a business finances their own credit
The obligation of a lessee upon expiration of a consumer               sales or assigns contracts to an institution who does not file
lease may not exceed three (3) times the average payment               (such as an out-of-state company, a federal saving institution,

allocable to a monthly period under the lease. The limitation          or a federal credit union)
does not apply to charges for damages to the leased property
or for other default.                                                  If a credit seller has original unpaid balances (volume) of
                                                                       consumer credit sales, they must report that volume on the

A seller may not use multiple agreements with the intent to
                                                                       Creditor's Notification Return. The first $100,000 of volume is
                                                                       exempt from the filing fee. Volume in excess of $100,000 is
                                                                       subject to a fee per $100,000 or part thereof set by the DFI.
                                                                                                                                         CREDIT SALES
                                                                                                                                           & LEASES
obtain a higher credit service charge (finance charge) than            The present filing fee is $15.00 per $100,000 or part thereof.
would otherwise be permitted by the Indiana Uniform                    Other information requested on the Creditor's Notification
Consumer Credit Code or to avoid disclosure of an annual               Return is any change in filing information and a list of branch
percentage rate.                                                       locations.

                                                                       The DFI, in order to determine whether the provisions of the
If the cash price of goods in which the credit seller has a            Indiana Uniform Consumer Credit Code are being complied
security interest is $3,100 or less (effective 7/1/98) and the         with by persons engaging in acts subject to that Article, may
seller repossesses or voluntarily accepts surrender of the             examine the books and records of persons and may make
goods, the buyer is not personally liable to the seller for any        investigations of persons as may be necessary to determine
unpaid deficiency balance on the sale of the goods, and the            compliance. The DFI shall determine the sufficiency of the
seller is not obligated to resell the collateral. If a seller elects   records and whether the person has made the required
to bring action against the buyer for a debt described above,          information reasonably available.
the seller may not repossess the collateral.
                                                                       The records pertaining to any consumer credit transaction
CREDIT SELLERS                                                         subject to the Indiana Uniform Consumer Credit Code shall
                                                                       be retained for two (2) years after making the final entry
Businesses who make consumer credit sales and/or leases                relating to the consumer credit transactions.
are required to file notification with the Department of
Financial Institutions (DFI). If your business engages in              The DFI shall be given free access to the records wherever
consumer credit transactions which include financing your              located. If the person's records are located outside Indiana,
                                                                                                                                          DEPARTMENT OF FINANCIAL INSTITUTIONS
own credit sales or leases and assigning contracts to a                the records shall be made available to the DFI at a
                                                                                                                                                 Consumer Credit Division
financial institution, and you have not filed with the DFI, call       convenient location within Indiana, or the person shall pay             30 South Meridian Street, Suite 300
the toll free or local number and request a filing form. There         the reasonable and necessary expenses for the DFI or its                   Indianapolis, Indiana 46204
is no fee to file.                                                     representative to examine them where they are maintained.                         317-232-3955
Contracts initiated by businesses who engage in consumer               The DFI may assess an examination fee established by the
credit sales or leases who are not filed, could be deemed              department for each day or partial day by which the
invalid.                                                               examination exceeds three (3) days per location to be
                                                                       examined. However, the examination fee provided for in the
The Notice of Intent Form and information is now on the                Code is payable only to the extent that the fee exceeds the
Internet.                                                              amount of the filing fees paid most recently.

An annual Creditor's Notification Return is also required to be
completed and returned to the DFI to keep filings current.
                                                                       VEHICLE RETURN                                                             YOU CAN COMPARE DIFFERENT
                                                                                  LEASING                              BUYING                     LEASE OFFERS AND NEGOTIATE
Under the federal Consumer Leasing Act, you, the consumer, have
a right to information about the costs and terms of a vehicle lease.    You may return the vehicle at         You may have to sell or             SOME TERMS.
This information will help you compare lease offers and negotiate a     lease end, pay any end-of-            trade the vehicle when              Consider . . .
lease that best fits your needs, budget, and driving patterns.          lease costs, and "walk away.          you decide you want a
                                                                                                              different vehicle.                   the agreed-upon value of the vehicle--a lower value can reduce
This consumer guide is for a closed-end lease, the most common                                                                                       your monthly payment
type of vehicle lease. With a closed-end lease, you may return the     FUTURE VALUE                                                                up-front payments, including the capitalized cost reduction
vehicle at the end of the lease term, pay any end-of-lease costs,                                                                                  the length of the lease
                                                                                  LEASING                              BUYING
and walk away.                                                                                                                                     the monthly lease payment
                                                                        The lessor has the risk of the        You have the risk of the
                                                                                                                                                   any end-of-lease fees and charges
                                                                        future market value of the            vehicle's market value
Leasing is different from buying. Here's how . . .                      vehicle.                              when you trade or sell it.
                                                                                                                                                   the mileage allowed and per-mile charges for excess miles
                                                                                                                                                   the option to purchase either at lease end or earlier
OWNERSHIP                                                              MILEAGE                                                                     whether your lease includes "gap" coverage, which protects you
                                                                                                                                                     if the vehicle is stolen or totaled in an accident.
             LEASING                 BUYING
                                                                                   LEASING                             BUYING                      ask for alternatives to advertised specials and other lease
 You do not own the vehicle.         You own the vehicle and                                                                                         offerings.
                                                                        Most leases limit the number          You may drive as many
 You get to use it but must          get to keep it at the end          of miles you may drive (often         miles as you want, but
 return it at the end of the         of the financing term.             12,000-15,000 per year). You          higher mileage will lower
 lease unless you choose to                                                                                                                       KNOW YOUR RIGHTS AND
                                                                        can negotiate a higher mile-          the vehicle's trade-in or
 buy it.                                                                age limit and pay a higher            resale value.                       RESPONSIBILITIES
                                                                        monthly payment. You will
                                                                        likely have to pay charges for                                            When you lease a vehicle, you have the right to:
            LEASING                           BUYING                    exceeding those limits if you                                              use it for an agreed-upon number of months and miles
 Up-front costs may include          Up-front costs include             return the vehicle.                                                        turn it in at lease end, pay any end-of-lease fees and
 the first month's payment, a        the cash price or a down                                                                                        charges, and "walk away"
 refundable security deposit, a      payment, taxes,                   CONSIDER BEGINNING, MIDDLE, AND END-                                        buy the vehicle if you have a purchase option
 capitalized cost reduction          registration and other            OF-LEASE COSTS                                                              take advantage of any warranties, recalls, or other services
 (like a down payment), taxes,       fees, and other charges.                                                                                       that apply to the vehicle.
 registration, and other fees,       Monthly payments.                 At the beginning of the lease, you may have to pay your first
 and other charges.                                                                                                                               You may be responsible for…
                                                                       monthly payment; a refundable security deposit or your last monthly
                                                                       payment; other fees for licenses, registration, and title; a capitalized   Excess mileage charges when you return the vehicle. Your lease
BUYING                                                                 cost reduction (like a down payment); an acquisition fee (also called      agreement will tell you how many miles you can drive before you
            LEASING                           BUYING                   a processing or assignment fee); freight or destination charges; and       must pay for extra miles and how much the per-mile charge will be.
                                                                       state or local taxes.
 Monthly lease payments are          Monthly loan payments                                                                                        Excess wear charges when you return the vehicle. The standards
 usually lower than monthly          are usually higher than                                                                                      for excess wear, such as for body damage or worn tires, are in your
                                                                       During the lease, you will have to pay your monthly payment; any
 loan payments because you           monthly lease payments                                                                                       lease agreement.
                                                                       additional taxes not included in the payment such as sales, use,
 are paying only for the             because you are paying
                                                                       and personal property taxes; insurance premiums; ongoing
 vehicle's depreciation during       for the entire purchase                                                                                      Substantial payments if you end the lease early. The earlier you
                                                                       maintenance costs; and any fees for late payment. You'll also have
 the lease term, plus rent           price of the vehicle, plus                                                                                   end the lease, the greater these charges are likely to be.
                                                                       to pay for safety and emissions inspections and any traffic tickets. If
 charges (like interest), taxes,     interest and other
                                                                       you end your lease early, you may have to pay substantial early
 and fees.                           finance charges, taxes,
                                                                       termination charges.
                                     and fees.

EARLY TERMINATION                                                      At the end of the lease, if you don't buy the vehicle, you may have to
                                                                       pay a disposition fee and charges for excess miles and excess
            LEASING                          BUYING                    wear.
 You are responsible for any         You are responsible for
 early termination charges if        any pay-off amount if
 you end the lease early.            you end the loan early
The Indiana Department of Financial Institutions, Division of

                                                                     GUIDE TO
Consumer Credit has many other credit related brochures
available, such as:

         Answers to Credit Problems

         Applying for Credit
         At Home Shopping Rights
         Bankruptcy Facts
         Buried in Debt
         Car Financing Scams
         Charge Card Fraud
         Choosing A Credit Card
         Credit and Divorce
         Credit and Older Consumers
         Deep in Debt?
         Equal Credit Opportunity
         Fair Credit Reporting
         Fair Debt Collection
         Gold Cards
         Hang up on Fraud
         High Rate Mortgages
         Home Equity Credit Lines
         How to Avoid Bankruptcy
         Indiana Uniform Consumer Credit Code
         Look Before you Lease
         Mortgage Loans
         Reverse Mortgage Loans
         Rule of 78s – What is it?
         Scoring for Credit
         Shopping for Credit
         Using Credit Cards
         Variable Rate Credit
         What is a Budget?
         What is the DFI?
                                                                 DEPARTMENT OF FINANCIAL INSTITUTIONS
Call our toll-free number or write to the address on the cover             Consumer Credit Division
for a copy of any of the brochures listed or for further              30 South Meridian Street, Suite 300
consumer credit information.                                              Indianapolis, Indiana 46204
HOME EQUITY SCAMS: BORROWERS BEWARE!                                    could use some extra money. A lender calls to talk about refinancing       The lender may tell you that this insurance comes with the loan,
                                                                        and, using the availability of extra cash as bait, claims it's time the    making you think that it comes at no additional cost. Or, if you
Do you own your home? If so, it's likely to be your greatest single     equity in your home started "working" for you. You agree to                object, the lender may even tell you that if you want the loan without
asset. Unfortunately, if you agree to a loan that's based on the        refinance your loan. After you've made a few payments on the loan,         the insurance, the loan papers will have to be rewritten, that it could
equity you have in your home, you may be putting your most              the lender calls to offer you a bigger loan for, say, a vacation. If you   take several days, and that the manager may reconsider the loan
valuable asset at risk.                                                 accept the offer, the lender refinances your original loan and then        altogether. If you agree to buy the insurance, you really are paying
                                                                        lends you additional money. In this practiceoften called                  extra for the loan by buying a product you may not want or need.
Homeowners-particularly elderly, minority, and those with low           "flipping"the lender charges you high points and fees each time
incomes or poor credit-should be careful when borrowing money           you refinance, and may increase your interest rate as well. If the         Credit insurance cannot be required if they are showing it on your
based on their home equity. Why? Certain abusive or exploitative        loan has a prepayment penalty, you will have to pay that penalty           itemization of the amount financed as an additional charge. The
lenders target these borrowers, who unwittingly may be putting their    each time you take out a new loan.                                         lender can require the insurance; but, if they do, the premium must
home on the line.                                                                                                                                  be in the finance charge and reflected in the disclosed annual
                                                                        You now have some extra money and a lot more debt, stretched out           percentage rate.
Abusive lending practices range from equity stripping and loan          over a longer time. The extra cash you receive may be less than the
flipping to hiding loan terms and packing a loan with extra charges.    additional costs and fees you were charged for the refinancing. And        MORTGAGE SERVICING ABUSES
The Federal Trade Commission urges you to be aware of these loan        what's worse, you are now paying interest on those extra fees
practices to avoid losing your home.                                    charged in each refinancing. Long story short? With each                   After you get a mortgage, you receive a letter from your lender
                                                                        refinancing, you've increased your debt and probably are paying a          saying that your monthly payments will be higher than you
THE PRACTICES                                                           very high price for some extra cash. After a while, if you get in over     expected. The lender says that your payments include escrow for
                                                                        your head and can't pay, you could lose your home.                         taxes and insurance even though you arranged to pay those items
Equity Stripping…                                                                                                                                  yourself with the lender's okay. Later, a message from the lender
                                                                        The "Home Improvement" Loan…                                               says you are being charged late fees. But you know your payments
You need money. You don't have much income coming in each                                                                                          were on time. Or, you may receive a message saying that you failed
month. You have built up equity in your home. A lender tells you that   A contractor calls or knocks on your door and offers to install a new      to maintain required property insurance and the lender is buying
you could get a loan, even though you know your income is just not      roof or remodel your kitchen at a price that sounds reasonable. You        more costly insurance at your expense. Other charges that you don't
enough to keep up with the monthly payments. The lender                 tell him you're interested, but can't afford it. He tells you it's no      understandlike legal feesare added to the amount you owe,
encourages you to "pad" your income on your application form to         problem-he can arrange financing through a lender he knows. You            increasing your monthly payments or the amount you owe at the
help get the loan approved.                                             agree to the project, and the contractor begins work. At some point        end of the loan term.
                                                                        after the contractor begins, you are asked to sign a lot of papers.
This lender may be out to steal the equity you have built up in your    The papers may be blank or the lender may rush you to sign before          The lender doesn't provide you with an accurate or complete
home. The lender doesn't care if you can't keep up with the monthly     you have time to read what you've been given. The contractor               account of these charges. You ask for a payoff statement to
payments. As soon as you don't, the lender will foreclose-taking        threatens to leave the work on your house unfinished if you don't          refinance with another lender and receive a statement that's
your home and stripping you of the equity you have spent years          sign.                                                                      inaccurate or incomplete. The lender's actions make it almost
building. If you take out a loan but don't have enough income to                                                                                   impossible to determine how much you've paid or how much you
make the monthly payments, you are being set up. You probably will      You sign the papers. Only later, you realize that the papers you           owe. You may pay more than you owe.
lose your home.                                                         signed are a home equity loan. The interest rate, points, and fees
                                                                        seem very high. To make matters worse, the work on your home               SIGNING OVER YOUR DEED
HIDDEN LOAN TERMS… THE BALLOON PAYMENT                                  isn't done right or hasn't been completed, and the contractor, who
                                                                        may have been paid by the lender, has little interest in completing        If you are having trouble paying your mortgage and the lender has
You've fallen behind in your mortgage payments and may face             the work to your satisfaction.                                             threatened to foreclose and take your home, you may feel
foreclosure. Another lender offers to save you from foreclosure by                                                                                 desperate. Another "lender" may contact you with an offer to help
refinancing your mortgage and lowering your monthly payments.           Credit Insurance Packing…                                                  you find new financing. Before he can help you, he asks you to deed
Look carefully at the loan terms. The payments may be lower                                                                                        your property to him, claiming that it's a temporary measure to
because the lender is offering a loan on which you repay only the       You've just agreed to a mortgage on terms you think you can afford.        prevent foreclosure. The promised refinancing that would let you
interest each month. At the end of the loan term, the principal the    At closing, the lender gives you papers to sign that include charges       save your home never comes through.
entire amount that you borrowedis due in one lump sum called a         for credit insurance or other "benefits" that you did not ask for and
balloon payment. If you can't make the balloon payment or               do not want. The lender hopes you don't notice this, and that you          Once the lender has the deed to your property, he starts to treat it
refinance, you face foreclosure and the loss of your home.              just sign the loan papers where you are asked to sign. The lender          as his own. He may borrow against it (for his benefit, not yours) or
                                                                        doesn't explain exactly how much extra money this will cost you            even sell it to someone else. Because you don't own the home any
Loan Flipping…                                                          each month on your loan. If you do notice, you're afraid that if you       more, you won't get any money when the property is sold. The
                                                                        ask questions or object, you might not get the loan.                       lender will treat you as a tenant and your mortgage payments as
Suppose you've had your mortgage for years. The interest rate is                                                                                   rent. If your "rent" payments are late, you can be evicted from your
low and the monthly payments fit nicely into your budget, but you                                                                                  home.
                                                                         The Indiana Department of Financial Institutions, Division of
PROTECTING YOURSELF                                                      Consumer Credit has many other credit related brochures
                                                                         available, such as:
You can protect yourself against losing your home to inappropriate
lending practices. Here's how:                                           Answers to Credit Problems

                                                                                                                                          HOME EQUITY
                                                                         Applying for Credit
                                                                         At Home Shopping Rights
Agree to a home equity loan if you don't have enough income to           Bankruptcy Facts
                                                                         Buried in Debt

                                                                                                                                          LOAN SCAMS
make the monthly payments.
                                                                         Car Financing Scams
Sign any document you haven't read or any document that has              Charge Card Fraud
blank spaces to be filled in after you sign.                             Choosing A Credit Card
Let anyone pressure you into signing any document.                       Credit and Divorce
                                                                         Credit and Older Consumers
Agree to a loan that includes credit insurance or extra products you
                                                                         Deep in Debt?
don't want.
                                                                         Equal Credit Opportunity
Let the promise of extra cash or lower monthly payments get in the       Fair Credit Reporting
way of your good judgment about whether the cost you will pay for        Fair Debt Collection
the loan is really worth it.                                             Gold Cards
                                                                         Hang up on Fraud
Deed your property to anyone. First consult an attorney, a               High Rate Mortgages
knowledgeable family member, or someone else you trust.                  Home Equity Credit Lines
                                                                         How to Avoid Bankruptcy
Do:                                                                      Indiana Uniform Consumer Credit Code
Ask specifically if credit insurance is required as a condition of the
                                                                         Look Before you Lease
loan. If it isn't, and a charge is included in your loan and you don't   Mortgage Loans
want the insurance, ask that the charge be removed from the loan         Repossession
documents. If you want the added security of credit insurance, shop      Reverse Mortgage Loans
around for the best rates.                                               Rule of 78s – What is it?
                                                                         Scoring for Credit
Keep careful records of what you've paid, including billing              Shopping for Credit
statements and canceled checks. Challenge any charge you think is        Using Credit Cards
inaccurate.                                                              Variable Rate Credit
Check contractors' references when it is time to have work done in
                                                                         What is a Budget?
your home. Get more than one estimate.                                   What is the DFI?                                                 DEPARTMENT OF FINANCIAL INSTITUTIONS
                                                                                                                                                    Consumer Credit Division
Read all items carefully. If you need an explanation of any terms or     Call our toll-free number or write to the address on the cover      30 South Meridian Street, Suite 300
conditions, talk to someone you can trust, such as a knowledgeable       for a copy of any of the brochures listed or for further                  Indianapolis, Indiana 46204
family member or an attorney. Consider all the costs of financing        consumer credit information.                                                     317-232-3955
before you agree to a loan.                                                                                                                              1-800-382-4880

      
ADVANTAGES AND DISADVANTAGES OF USED CARS                                 equipment, price, and lot location. The vehicles carry seller              Test drive one or two vehicles. If you are interested in a particular
                                                                          warranties which vary in quality from generous to average and many         car, ask the salesperson if you can take the car to your mechanic for
Nearly two out of every three cars sold are used cars. Many               carry the balance of the manufacturers original warranty. Drawbacks        an evaluation. Also, examine the cars warranty. Check the
consumers, especially teenagers, cannot afford to buy a new car           of Superstores are that the salespeople may be relatively                  performance, safety and service records for the car. You can obtain
when the average price is approximately $18,000. The cost of              uninformed. They cannot provide information about previous car             price information from the Consumer Reports Used Car Price
insurance is much higher for a new car, increasing the demand for         owners and the prices are generally higher.                                Service for $1.75 per minute, phone 1-900-446-0500. On the
used cars. The supply of used cars has increased due to the                                                                                          Internet, you can obtain price information from Edmund's New and
number of two and three-year-old lease cars available.                    Independent Lots offer a variety of cars, from excellent and               Used Car Prices and Reviews, at http://www.edmund.com and from
                                                                          expensive to well-worn clunkers. Usually, car lots have no service         the Kelley Blue Book http://www.kbb.com . Also the NADA Official
There are real advantages to buying a used car. The buyer of a            facilities, but they may work with a local garage. If they offer           Used Car Guide gives information about the prices of used cars.
used car avoids some of the depreciation costs, which can be up to        warranties, the local mechanic will perform warranty repairs. In
40% of its value in the first two years. Sometimes, buyers can afford     order to learn the reputation of a used car lot or dealership, buyers      These resources are available at your local public library. You can
more options and luxury items when they purchase a used car.              can phone local consumer protection offices or the Better Business         check if a used car has had a safety recall by calling the National
Many consumers feel that they can arrange a better deal with less         Bureau to inquire about complaints against the business.                   Highway Traffic Safety Administration's Auto Safety Hotline at (800)
hassle if they buy directly from the owner of the car.                    Independent lots often offer financing and there can be strong             424-9393 or on the Internet at
                                                                          pressure to finance the car through them. Their finance rates are          http://www.dot.gov/affairs/nhtsain.htm.
Buying a used car can have disadvantages as well. One important           usually higher than at banks or credit unions.
disadvantage is that often the most maintenance-free time of the                                                                                     Leave the premises. At home, phone the previous owner. Ask for
cars life is during the first two years. Some used cars have serious      Rental Agencies offer rental cars for sale to the public after a year or   the mileage reading at the time of trade-in. It should be consistent
hidden defects with limited or no warranty coverage. It is sometimes      two of use. These late model cars often carry the balance of the           with the present reading. Contact your financing sources, request
difficult to determine whether the car was maintained properly by its     manufacturers warranty and service records are generally available.        price information about specific cars and confirm loan availability.
previous owner. The used car may not have all the desirable safety        To buy from a rental agency, buyers have to arrange their own              Also, get an estimate of your insurance costs from at least two
or technical features of a new car. The selection of models,              financing and no trade-ins are accepted.                                   insurance sellers.
equipment, and colors may be limited.
                                                                          Private Sales are often good buys, but be cautious when buying             Review your information and estimate the wholesale and retail price
WHERE TO BUY A USED CAR                                                   from an individual. When possible, buyers should deal with a seller        for the car you wish to purchase, based on the following information:
                                                                          they know and trust. Sellers are often people who have not been
Buying a used car is an important financial decision. Generally, the      able to get the price they want for their car as a trade-in. There is       price information from a current used-car price guide or from
price of a used car is determined by who is selling it. So, it is smart   little pressure to buy and repair records may be available. However,         financing sources
to gather information before you buy, such as knowing what you can        these used vehicles are sold " as is " with no warranty. Late model
afford, then carefully exploring financial arrangements as you            cars may still have a manufacturers warranty that you can purchase          the cars condition, checked by you
negotiate the best deal.                                                  for a transfer fee. The sale may be risky because stolen cars with
                                                                          phony titles can be sold and so can cars about to be repossessed.           prices of similar vehicles, from advertisements
Dealerships account for approximately 50% of the used cars sold           Also, there can be concealed damage or major repair problems.
annually. Dealers usually have a good supply of late model used                                                                                       reasonable seller markup to cover overhead and profit
cars, so they offer a selection in top condition. These vehicles often    BEFORE YOU NEGOTIATE
carry the balance of the manufacturers warranty and some dealers                                                                                     Return to the seller and make arrangements to take the car to your
offer their own warranties. In addition, dealers have service             Visit the dealership, superstore, car lot or other source. When            mechanic. You may be asked to leave your car at the lot as security.
capacities, provide financing services and take care of vehicle           buying from a private individual, adapt the following steps to that        Once you receive the mechanic's dollar estimate of needed repairs,
registration and license forms.                                           type of sale. Take a notepad and calculator. Be prepared to spend          either subtract that amount from your maximum offer or use it as a
                                                                          time.                                                                      negotiating tool.
The Federal Trade Commission's Used Car Rule requires dealers to          Meet the salesperson or seller and write down his or her name.
display prominently and conspicuously a warranty notice called a          Look for the models you are most interested in. If asked how much          THE NEGOTIATING PROCESS
Buyer's Guide sticker on all used cars (but not trucks). The Buyer's      you would like to spend, say, "it depends on the car." Do not be
Guide must state whether the vehicle has a warranty or is being           afraid to say that you are looking for cars at other places.               Negotiation is the process of discussing the price and terms of a
sold "as is."                                                                                                                                        used car, eventually arriving at an agreement between the buyer
                                                                          Find one or two models and inspect them. On your notepad, identify         and seller. Any well-informed buyer can negotiate a fair deal using
Used Car Superstores are a recent development. They usually have          the car, the year, the price, options, trim line, mileage, and vehicle     the following steps.
a large stock of cars and buyers have access to computer-assisted         identification number (VIN). Request the name and phone number
selection. Two and three-year-old models predominate and car              of the previous owner from the title. Ask to see the title, then match     Make an offer. It should be 15% to 20% below the maximum
prices are fixed and not negotiable. To begin the selection process,      the VIN with that on the car and note the name and phone number            amount you would pay so that there is room to bargain. You may be
you use a computer terminal to bring up vehicles by make, mode,l          of the previous owner.                                                     asked about a trade-in or be urged to sign up for dealer financing.
and price. The computer will print a picture of any car and list its
To both questions, say you are undecided. Your goal at this point is         Get all verbal promises in writing.
to get agreement on the car price.
                                                                            There is no three-day cooling off period for auto contracts so do not
Your first offer will likely be rejected. Your second offer should not      sign any automobile contract without understanding it. Your
split the difference between your first offer and the seller's counter      signature is legally binding.

                                                                                                                                                     HOW TO BUY A
offer. It should split the difference between your first offer and the
maximum amount you will spend. You can use the cost estimates of            SUMMARY OF TIPS
repairs supplied by your mechanic to help negotiations.
                                                                            Check out the car's repair record, maintenance costs, and safety

                                                                                                                                                       USED CAR
Making an offer at a used car Superstore with no-haggle prices              and mileage ratings in consumer magazines or online.
requires a different strategy. If you cannot negotiate on price,
consider other aspects of the sale, such as more attractive                 Look up the "blue book" value and be prepared to negotiate the
financing, a higher trade-in price, or a longer/more inclusive              price.
warranty.                                                                   Buying from a dealer? Look for the Buyers Guide. It's required by a
                                                                            federal regulation called the Used Car Rule.
If you reach a price standoff, change the situation by taking another
look at the car. Using the Buyers Inspection Checklist, you may
                                                                                                                                                                                     DEAL !
                                                                            Make sure all oral promises are written into the Buyers Guide.
notice problems you overlooked previously. At this point, do not
agree to a deposit since you have no contract, only your offer. A           You have the right to see a copy of the dealer' warranty before you                                      NO
deposit may give the seller the leisure to negotiate a higher price.        buy.                                                                                                     MONEY
Some buyers feel at ease making several offers and counter-offers,          Warranties are included in the price of the product; service contracts
simultaneously negotiating for better warranty coverage or                  cost extra and are sold separately.
additional equipment. They may give up $50 to $l00, but they expect
something in return. If that is the case, be sure to write down any         Ask for the car's maintenance record from the owner, dealer, or
promises made by the salesperson.                                           repair shop.

Your last offer should be close to the maximum amount you would             Test drive the car on hills, highways, and in stop-and-go traffic.
pay for the car. Be ready to justify your offer as reasonable and fair
by showing how you arrived at it. Make it clear that this offer is final.   Have the car inspected by a mechanic you hire.
If the dealership rejects it, be prepared to walk away. The
salesperson may catch you in the parking lot or phone you the next          Check out the dealer with local consumer protection officials.
                                                                            If you buy a car "as is," you'll have to pay for anything that goes
If the salesperson accepts an early offer but then says that the sales      wrong after the sale.
manager will not approve the deal, it is likely that you are being low-
balled. That is, a low offer is initially accepted by the salesperson       The Used Car Rule generally doesn't apply to private                      DEPARTMENT OF FINANCIAL INSTITUTIONS
who knows it will be rejected so that a higher price can be reached         sales.                                                                            Consumer Credit Division
in further negotiations. If that happens, leave, because low-balling is                                                                                    30 South Meridian Street, Suite 300
a form of dishonesty.                                                       If you decide to buy a used vehicle, take time to comparison shop                Indianapolis, Indiana 46204
                                                                            for both the car and its financing plan. Because you do not always                       317-232-3955
If the seller accepts your offer, you have a deal. The salesperson          know how the used car was driven or maintained, be especially                           1-800-382-4880
will then prepare a Buyers Order or Purchase Agreement to be                concerned with its condition. Deciding where to buy and where to
signed by you. Insist on a readable document, not a first draft. A          finance the car is a challenge. See How To Finance A Used Car, for
preprinted form or computer-generated form may automatically                information on the sources for financing used cars.
charge you for things you have already refused, so examine the
contract before you sign.                                                   Buyers should not pay the asking price for a used car unless they
                                                                            are dealing with a Superstore. Sellers of used cars have set a price
 Check the purchase agreement for arithmetic errors, mistaken              that allows room for bargaining. However, buyers do not always
prices, extra charges, omissions, and blank spaces.                         think about having all verbal promises and guarantees in writing.
                                                                            Unless promises are in writing and signed by the seller, they are
 Be sure that the information on the purchase agreement is                 legally unenforceable. So if the seller will not put everything in
consistent with the information in your notes.                              writing, your best option is to shop for a better deal elsewhere.
Basic Types Of Credit                                      A "Simple interest" account balance is the principal        Read Before You Sign
                                                           balance and does not include any finance charges or
                                                           interest. The interest is calculated from payment date to   Your creditor is required to give you specific
Revolving Credit - Open End. . . .                         payment date on the unpaid principal balance; the           information to help you understand the terms of your
                                                           interest is subtracted from the amount of the               agreement. Those required disclosures must be
Typically covers most credit cards, revolving charge       installment and the amount remaining is subtracted
accounts in retail stores, and lines of credit with                                                                    provided clearly and conspicuously.
                                                           from the principal balance. When a "simple interest"
lending institutions. Sales or cash advances have          account pays off, the amount due is the principal
finance charges calculated on the unpaid balance or                                                                    Take the time to read your contract, do not let the
                                                           balance plus interest due on that balance from the date     creditor rush you. If there is a provision in the contract
average monthly balance and the consumer has the           last paid to the date of the payoff. It is important to
privilege of paying in installments.                                                                                   you do not understand, ask about it.
                                                           know which type of an account your credit transaction
                                                           will be.                                                    In addition, credit insurance must not be a factor in the
A periodic statement is given showing the periodic
rate, annual percentage rate, previous balance, debits                                                                 approval of the extension of credit and you must desire
and credits during the billing period, present balance,    Where to Shop for Credit                                    that insurance and voluntarily request the insurance for
balance upon which finance charges were imposed,                                                                       the premium to be excluded from the finance charge.
minimum payment due, and the date payment is to be         It is important to shop for credit just like you shop for
received.                                                  new clothes or a new car. You need to compare the cost      The creditor may also try to sell you other types of
                                                           of different companies' credit transactions the same as     insurance and/or auto club plans. If you do not want
                                                           you would compare the cost of a new car.                    them, tell them so. Never be pressured into accepting a
Installment Credit - Closed End. . . .                                                                                 product you do not want. The more products added to a
                                                           If you are making a purchase on credit, shop different      loan or credit sale, the more that credit transaction will
The granting of credit for a sale of merchandise or        merchants not only for the best buy for the product but     cost you.
service or a cash advance loan by a contractual            also the best buy for your credit transaction. If you are
agreement. The cash price or cash advanced plus            planning on taking out a loan, shop around to the           The credit transaction is legal and binding once it is
allowable additional charges such as sales tax, official   different types of financial institutions such as banks,    signed by the debtor/s. A loan secured by the debtor's
fees, and authorized credit insurance premiums are the     credit unions, savings and loans as well as finance         residence that is not for the purchase of the residence
amounts to be financed. The amount financed plus the       companies to fine the lowest finance charges for your       and a home solicitation sale are the only types of credit
finance charge is scheduled to be repaid in                particular needs.                                           transactions that have a three day period in which the
installments.                                                                                                          debtor/s can cancel or rescind the transaction.
                                                           What to Look For
The contract must disclose the finance charge rate as an
Annual Percentage Rate; the Finance Charge; the            The first question you need to ask in a credit
                                                                                                                       Remember . . .
amount financed; the total of payments; the number,        transaction is "What is the Annual Percentage Rate?"
amount, and timing of installments as well as other        The Annual Percentage rate is the cost of your credit       Shopping for credit will let you choose the
information pertaining to the contract.                    transaction expressed as an annual interest rate. The       best possible credit terms to suit your
                                                           annual percentage rate reflects all types of finance        particular needs.
Closed end transactions can be "precomputed" or            charges that are imposed in the credit transaction.
"simple interest" accounts. "Precomputed" accounts
have the finance charge included in the total balance      A credit transaction may have a note rate of 9% plus        Use the annual percentage rate to compare
due and each payment is subtracted from that balance.      high prepaid finance charges known as "points" that         credit costs.
A refund by the Rule of 78s is given of unearned           make the annual percentage rate much higher than the
finance charges if the account if prepaid in full. See     9% note rate. A company might also verbally quote
our Brochure on the Rule of 78s - What is it?                                                                          Read the credit agreement before you sign.
                                                           you an "add-on rate" which is also a rate much lower
                                                           than the actual annual percentage rate. A 10% "add-on
                                                           rate" can result in an annual percentage rate of 18%.       Don't be afraid to ask questions if you do not
                                                                                                                       understand the credit agreement.
The Indiana Department of Financial
Institutions, Division of Consumer Credit has
many other credit related brochures available,
such as:

                                                     FOR CREDIT
Answers to Credit Problems
Applying for Credit
At Home Shopping Rights
Bankruptcy Facts
Buried in Debt
Charge Card Fraud
Choosing A Credit Card
Credit and Divorce
Credit Reporting and Scams
Debt Collection Problems?
Deep in Debt?
Equal Credit Opportunity
Fair Credit Reporting
Fair Debt Collection
Gold Cards
Hang up on Fraud
High Rate Mortgages
Home Equity Credit Lines
How to Avoid Bankruptcy
How to Cut the Costs of Credit
Identity Theft
Look Before you Lease
Mortgage Loans
Older Consumers
Reverse Mortgage Loans
Rule of 78s – What is it?
Secured Credit Card Scams                            DEPARTMENT OF FINANCIAL INSTITUTIONS
Shopping for Credit                                             Consumer Credit Division
Using Credit Cards                                         30 South Meridian Street, Suite 300
Variable Rate Credit                                           Indianapolis, Indiana 46204
What is a Budget?                                                     317-232-3955
What is the DFI?                                                     1-800-382-4880

Call our toll-free number or write to the address
on the cover for a copy of any of the brochures
listed or for further consumer credit information.

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